401(k) Plan Options for Business Owners

Choosing a retirement plan is an important decision for any business owner. A well-designed 401(k) can help employees prepare for the future while making your organization more competitive when attracting and retaining talent.

At Grant Marshall Retirement & Wealth Planning, we know that the available plan choices can seem complicated at first. The best fit depends on the size of your business, the goals you have for the benefit, and the level of administration your company can support.

Why Your 401(k) Plan Selection Is Important

Every 401(k) plan is built to help participants save for retirement, but the rules and responsibilities can differ from one structure to another. Those differences matter when deciding how a plan will work for your employees and your company.

Your plan choice can influence contribution options, employer obligations, flexibility, compliance duties, and ongoing administrative work. It can also affect how easily the plan continues to serve your business as it grows or changes.

A plan that does not suit your company may create avoidable administrative challenges or provide less value than intended. Selecting a structure that matches your needs can make the retirement benefit more manageable and meaningful for both the business and its employees.

Traditional and Roth 401(k) Contributions

Traditional and Roth 401(k) contributions are among the most familiar retirement savings options for employers and employees. Although both use the 401(k) framework, they differ primarily in the timing of taxes.

With a traditional 401(k), employees contribute money from their pay before taxes are withheld. This may lower their taxable income in the year of contribution, which can be useful for individuals who want to reduce their current tax liability. Investments grow tax-deferred, and distributions taken in retirement are generally taxed as ordinary income.

Traditional 401(k) accounts are also generally subject to required minimum distributions beginning at age 73. That means participants must begin taking certain withdrawals once they reach the applicable age.

A Roth 401(k) works differently. Employee contributions are made with after-tax dollars, so participants do not receive an immediate tax deduction. In exchange, qualified withdrawals in retirement are tax-free, which may appeal to employees who anticipate being in a higher tax bracket later in life.

Beginning in 2024, Roth 401(k) accounts are no longer subject to required minimum distributions during the account owner’s lifetime. This gives participants added flexibility when planning for retirement distributions.

Employers may also offer both traditional and Roth contribution choices in one plan. Giving employees access to both options can help them select the approach that best fits their individual financial circumstances.

SIMPLE 401(k) Plans for Small Businesses

A SIMPLE 401(k) can offer a less complex retirement plan option for businesses with 100 or fewer employees. It is intended to make retirement benefits more accessible for smaller organizations that want a manageable plan structure.

While contribution limits are lower than they are with a standard 401(k), a SIMPLE 401(k) may involve fewer administrative demands. This can make it an appealing starting point for companies that want to establish a workplace retirement benefit without taking on unnecessary complexity.

Employer contributions are required with a SIMPLE 401(k). A business must either match employee contributions up to a specified percentage or contribute a fixed amount for every eligible employee, including those who choose not to contribute from their own pay.

Employee deferrals are made on a pre-tax basis, and the plan generally follows traditional 401(k) rules for retirement withdrawals and required distributions. For a small employer seeking a straightforward way to support employee retirement savings, this structure may be a practical option.

Safe Harbor 401(k) Plans and Compliance

A Safe Harbor 401(k) is often considered by small and mid-sized businesses that want a more predictable approach to retirement plan compliance. Its structure can help reduce some of the challenges associated with annual testing requirements.

One key advantage is that a Safe Harbor plan automatically meets most IRS nondiscrimination testing requirements. These tests are meant to confirm that a retirement plan does not disproportionately favor highly compensated employees. When a plan fails testing, the employer may need to make corrections and incur additional costs.

To receive this benefit, the employer commits to making required contributions to eligible employee accounts. These employer contributions are immediately vested, so employees have full ownership of the funds as soon as they are contributed.

Businesses may select from several contribution designs, including non-elective contributions and certain matching contribution formulas. Although the required employer funding creates an ongoing commitment, it can provide greater predictability while reducing the burden of compliance testing.

Solo 401(k) Plans for Self-Employed Business Owners

A one-participant 401(k), commonly known as a solo 401(k), is designed for business owners who do not have employees. It may also work when the owner and a spouse are the only eligible plan participants.

This plan is especially valuable because the business owner can contribute in two capacities: as an employee and as the employer. That dual role can create an opportunity for higher total retirement plan contributions than many other available plan types.

For 2025, combined solo 401(k) contributions can reach as much as $72,000, with additional catch-up contributions available to eligible individuals age 50 and older. This structure can help self-employed owners accelerate retirement savings when their income and plan rules allow.

A solo 401(k) can be established with either traditional or Roth contribution treatment, allowing owners to choose the tax approach that better matches their planning objectives. It also generally follows the same withdrawal and distribution rules that apply to other 401(k) arrangements.

For self-employed individuals focused on saving efficiently for retirement, a solo 401(k) can be one of the more advantageous options available.

Selecting a 401(k) Plan That Fits Your Business

Each type of 401(k) is intended for a different business situation. Whether your company has a growing workforce or you operate independently, the plan you choose should reflect your goals, resources, and ability to manage the associated responsibilities.

Understanding the differences among traditional, Roth, SIMPLE, Safe Harbor, and solo 401(k) plans can help you make a more informed decision. It can also help your business avoid unnecessary complications while offering a retirement benefit that supports employees effectively.

If you are exploring a new 401(k) plan or evaluating an existing one, Grant Marshall Retirement & Wealth Planning can help you consider the available options and identify a structure that aligns with your business. A clear plan today can help support your employees and your company as your needs evolve.